M&S says no risk to service from new warehouse ramp-up

LONDON Tue Aug 20, 2013 6:22am EDT

LONDON Aug 20 (Reuters) - Marks & Spencer, Britain's biggest clothing retailer, said customer service was not at risk as it builds up capacity at a huge new distribution centre in central England.

Shares in M&S, which also sells homewares and upmarket food, fell as much as 0.9 percent on Tuesday after Sky News reported that the 900,000 square foot warehouse in Castle Donington, Leicestershire had been hit by IT glitches.

It said the problems were of sufficient scale to prompt some M&S trading directors to express concerns about allowing their stock to flow through the new centre for fear of disrupting availability in stores.

A spokesman for M&S declined to comment on the specifics of the Sky News report.

However, he did say: "We've said from day one that operations at Castle Donington will build over a long period of time to protect customer service. Nothing's changed and it's early days on site as we follow the ramp-up plan."

The distribution centre, big enough to hold 3,507 London double-decker buses, opened in April and is scheduled to reach full capacity towards the end of 2014.

The fully automated site will be able to store up to 16 million products and at peak times will be capable of processing 1 million products a day. Eventually it will fulfil all of M&S's online orders.

The firm said in May it expected to incur 30 million pounds ($47 million) of non-recurring dual running costs in the 2013-14 year as a result of the opening of the Castle Donington site and the transition to a new web platform.

M&S is spending 1 billion pounds over six years to 2015 on logistics, IT and systems and is targeting 300 million pounds in annual savings.

The group is replacing more than 100 warehouses it had across Britain in 2009 with three huge distribution centres. Castle Donington is the second of these. The first opened in Bradford, northern England. London Gateway will be the third in 2014.

The Sky News report took the shine off M&S's share price rise on Monday, achieved after positive media coverage of its advertising campaign for a make-or-break autumn/winter fashion range.

M&S needs the range to succeed to reverse eight straight quarters of declining underlying clothing sales.

"The revelation of warehouse problems is a sober reminder that the autumn fashion range will succeed or fail on the basis of the execution by M&S in terms of merchandising and stock availability," said independent retail analyst Nick Bubb.

Shares in M&S were down 2.3 pence at 457.3 pence at 0952 GMT, valuing the business at 7.4 billion pounds.

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